The implications of the American-US Airways merger for OEMs

The agreement between American Airlines, US Airways, the US Department of Justice and the states suing to block the merger to settle their lawsuits clears the way for AA-US to merge.

This has implications for the Big Four airframe and the engine manufacturers who have been living in some uncertainty. Here’s the rundown:

Airbus

American and US Airways have large orders with Airbus: American for the A320ceo and neo family and US Airways for the A320ceo family and A350-800/900.

American is taking delivery of the A319ceo and A321ceo. The neo comes several years into the future. American has been taking a large number of A319s, while US Airways have been up-gauging its Airbus single aisle orders, passing on the A319 in favor of the A320ceo or A321ceo. US Airways management, which will take over the New American Airlines, may elect to change the mix within the 18 month lead time limitations.

The more interesting question is what US Airways will do with its A350-800 order. US Airways, along with Hawaiian Airlines, is now the largest customer for the -800. Airbus has been shifting customers from the -800 to the -900 and the -1000, in part to de-risk the program and in part because the larger models are more profitable for Airbus. But some customers elected to switch because the economics of the larger capacity -900 are better than the smaller -800 while operating costs are about the same.

Now that AA and US will combined, the -800 seems surplus when the large order held by American for the Boeing 787-8/9 is considered. The US Airways management could elect to drop the -800 in favor of the 787. Such would unlikely be a total loss for Airbus, however: New American would likely up-gauge to the A350-900 or even the A350-1000, or order more A320neos to keep Airbus “whole.”

Boeing

US Airways hasn’t ordered a Boeing airplane since the days of the 737 Classic or 757/767, and the current management has been retiring all of them as fast as they could. Now they’re solidly back in Boeing territory. “Old” American has a large order of 737NGs and 737 MAXes in addition to the 787 orders. Old American is only taking the 737-800 and the New American will continue this type and probably select only the 737-8 MAX to fulfill that commitment. But we don’t look for any burst of new orders.

Bombardier and Embraer

A large order to recapitalize the American Eagle regional jets stalled because of the anti-trust lawsuit. With the settlement, Bombardier and Embraer resume their competition for this order. Bombardier offers the CRJ700/900 and Embraer offers the E-170/175/190. Union Scope Clause will influence the number and size of the airplanes. Bombardier pits a more economical CRJ against the more comfortable E-Jet. A decision was supposed to happen last month until the lawsuit was filed. This may slip into 1Q2014, though it’s certainly possible it could come before the end of the year. Each OEM needs the order to fill production slots and a thin backlog, though Embraer is in better shape on this score than Bombardier.

Engine OEMs

Rolls-Royce is the sole engine provider for the A350, so the outcome of the A350-800 order is of more than passing interest. American selected GE as the engine provider for the 787, so Rolls could come out on the short end of any order adjustments.

CFM is supplying the engines for the A319ce0s and International Aero Engines for the A321ceos. But Old American hasn’t selected engines for the neo family. US Airways, following the combination of Old US Airways and America West Airlines, has CFM56 and IAE V2500 engines on its ceo fleet. US was a CFM operator and America West V2500s. CFM and Pratt & Whitney, majority shareholder of IAE, will compete vigorously for the neo order, and each will try and leverage the ceo deals. CFM has additional leverage. It supplies the engines on the 737NG and 737 MAX and sibling GE Aviation is on the 787, as well as American’s 767 and 777-300ER fleet. CFM/GE has the ability to offer a “global” commercial deal PW/IAE would not be able to match.

Bottom Line

OEMs will be engaged in strong competition over the coming months at the New American. It will be interesting to see how this plays out.

15 Comments on “The implications of the American-US Airways merger for OEMs

  1. Its going to be an interesting fight between the airframe and engine OEMs for the new AA.
    But what of the paying airline customers, less competition means higher ticket prices, particularly in AA strongholds like DFW and MIA.

    • In Miami, the AA share of seat capacity will grow from 76% to 81.5%. Yes, that’s a very large share, but not much larger than before. And incidentally not much different from DL’s share out of Atlantca at 79.8% or UA’s out of IAH at 82.5% However, if you include FLL in the picture, AA only has a 38.5% share of combined capacity, growing to 45.4% with US. With the divestiture will drop that a little. I don’t think it will make much of a difference in southern Florida.

  2. With the Wright amendment coming to an end and Southwest able to fly anywhere from Texas you might see more competition out of DFW not more.

    • No, AA does not have close to 300 A-321/-321NEOs on order. They have 65 A-321CEOs and another A-321NEOs on order, for a total of 195 airplanes.

      I did not count the US fleet as they are not merged yet and some changes to ordered aircraft may be needed.

      AA got their first B-777-200ER in 1999, so they are not ready to retire them yet. AA tends to keep airplane types for a very long time. 30+ year types kept in the fleet include the B-727, MD-80, DC-10, B-757, B-767.

    • “The new AA has close to 300 A321s on order/ in service.”
      KCT: “No, AA does not have close to 300 A-321/-321NEOs on order.”

      ?!

      US has 93 A321 CEO in service and 17 on order. AA has 65 A321 CEO and 130 A321 NEO’s on order. So yes, the new AA has close to 300 A321s on order/ in service. Further more AA has 280 NEO options. The skies around DFW will be full of them 😉

      • keesje, there is no “new AA” yet.

        I said; “I did not count the US fleet as they are not merged yet and some changes to ordered aircraft may be needed.”

        Some of the airplanes currently on order by both US and AA will have to be looked at again, as many of these orders overlap each other.

        AA has 65 A-321CEOs on order and deliveries are about to start, US still has 17 more A-321CEOs on order. Many of US’s A-320s are old now and will need replacing. The “new AA” can accelerate those A-320 retirements, along with its MD-80 series airplanes and continue to take the current order of A-319s, B-737-800s, and A-321s.

        Both AA and US are also retiring many B-757-200s and all B-767-200ERs.

        US has some 22 A-350s on order, 18 -800 models and only 4 -900 models. With the AA order of 42 B-787-8/-9s on order, it makes the A-350 order redundant. I suspect these B-787s will be what really replaces the US and AA B-762s and the AA B-763s beginning in 2015.

        What AA brings to US is finally a creditable WB fleet. US only has 34 WBs in service or on order (not counting the A-350 orders), including the 10 B-767-200ERs scheduled for retirement.

        The combined AA/US have some 610 new airplanes on order, mostly from Airbus and Boeing.

      • @KC, the first question is whether 64 wide-bodies on order is actually too much, especially given the ancient 763s and the age of AA’s 772s. If it is, the second question is what they would change, and what is the right aircraft for the “new” AA. I think it’s still too early to draw definitive conclusions on that.

  3. IIRC, isn’t James Albaugh part of the new AA BOD? I wonder how that would influence things.

    While I’m completely opposed to this merger and believe that AA will have some serious labor problems within a few years (not to mention the DOJ “whimped out”), the A358XWB would be a excellent MIA-JNB plane.

    • The B-777-200ER/-300ER can already do that mission, it is only 7,000 nm. The AA B-787-8/-9s will also be able to easily do that mission so those A-350-800s are no longer needed by US.

      Yes, I agree with you, this AA/US merger will create huge labor problems. Parker tends to ignore that, just ask the former America West pilots and employees.

      • @kc135topboom…at 7,000nm, the route wouldn’t be viable with a decent pax/payload using the B77E-especially out of JNB.

        IMHO, the B77W is too big of a plane. The A358XWB will have the range and pax/cargo capabilites-along with the efficiency of making the route work.

        US incomer Scott Kirby did mention MIA-JNB is one route which AA will probably start.

        I also believe AA will have some serious earnings issues given its massive rise in costs.

        The DOJ has sold us consumers down the can.

  4. AA has a “few” 777-200ER’s to replace (47) too. That would be between the 787-10 and/or 777-8X and A350XWB’s.

  5. So my understanding (relying on Canadian business news) is that the Justice Department justified its opposition by forcing the two carriers to disgorge a considerable number of the landing slots they were trying to retain at certain key airports? If so seems they were doing the right thing despite some enraged comments by business and other interests.

    • @David Hughes The combined carrier barely gave up anything (in terms of %). This has to be the most pathetic attempt by the DOJ for a settlement I’ve ever read.

      I think there should be an inquiry as to how lopsided and how quickly the DOJ folded.

      The consumer will suffer from this.

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